Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Mr. H.E. Garland Assistant Deputy Minister Policy & Systems Branch
May 1, 1979
J.G. Fullarton
Subsection 73(3) permits a farmer to transfer to his child, farm property postponing, at his discretion, all or part of the taxable capital gain which would otherwise occur at that time. In the past we have taken a very lenient position allowing farmers to change, with retroactive effect, farm agreements transferring farms to their children when agreements had been based on wrong information which emanated from the Department. (A recent change in policy has removed the need for further changes to this type of agreement). In other cases, requests for change with retroactive effect are believed to have been very infre- quent with agreement depending on valid reasons other than the avoidance or postponement of tax.
In the XXXX case it was apparently the intention to transfer the property to the daughter at fair market value, $20,000. This amount was the face value of the note which did not bear any interest and was payable on demand. XXXX had intended to claim a reserve under sub- paragraph 40(1)(a)(iii) but is precluded from doing so since he could have enforced payment on the note during 1976. When this matter was brought to XXXX attention a request was made for permission to change the prom- issory note from being payable on demand to being payable 367 days after demand. By this method it was hoped that the tax payable as a result of the transfer of property to the child would be postponed until the death of the survivor of the child and her husband.
We have stated that we should not generally agree to a change in a promissory note from payment on demand to a term note. We have taken this stand because it is proposed for the sole purpose of avoiding or postponing the payment of capital gains tax. In the case at hand we suggest that we do not agree to the replacement of the demand note by a term note payable 367 days after demand. If we do allow the substitution we should take the position that it would not be reasonable to allow a reserve in 1977 since a demand for payment could have been made in 1976 which would have required payment of the note in 1977.
If we do not take a position as stated above it is likely that we may never see any capital gains tax on the appreciation in value of the prop- erty up to the date of transfer to the children.
Assistant Director General Compliance Directorate, Audit
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